Minnesota budget forecast will outline pain to come

ST. PAUL, Minn. (AP) — Minnesota's budget has been running deficits for three solid years, with no end in sight.

The incoming Republican-led Legislature and a yet-to-be-declared governor knew the state was in rough financial shape when they ran for office. Thursday's budget forecast will tell them just how bad.

Here are some questions and answers about the forecast.

Q: Why do state leaders care about the report?

A: Lawmakers rely on the projections of tax collections and spending patterns to set the state budget. There are only two comprehensive forecasts a year, and legislators haven't had an update since the professionals predicted a $5.8 billion shortfall for the 2012-2013 budget cycle back in March. A bad forecast can prompt spending cuts, accounting maneuvers, higher fees and calls for tax increases. In fatter times, surpluses can turn into tax cuts or spending increases.

Q: Do we have any hints about Thursday's numbers?

A: On the revenue side, tax updates have said that the most recent budget year ended with $77 million less than anticipated in June, but the state has taken in $100 million more than projected since July. Those numbers don't account for spending patterns or an October flood relief package that tapped $38 million from the state general fund. Quarterly economic updates have laid out expectations for a gradual recovery and slow job growth. The weak economy puts pressure on state spending as more people turn to subsidized health care, food aid and other safety-net programs.

Q: Haven't Gov. Tim Pawlenty and legislators been in cutting mode for a while now?

A: Yes, but they've also leaned on federal stimulus dollars and accounting moves, such as delaying payments to school districts, to avoid deeper reductions. Those strategies are all but exhausted now. The state is spending less than projected on everything from health and welfare programs to local government allowances, public colleges and line items as small as grants to address compulsive gambling. The current two-year state budget shrunk to $31 billion from $34 billion in the last cycle, but stimulus money flowed into some state programs and prevented deeper cuts.

Q: Can Pawlenty still cut the budget by himself?

A: The departing Republican governor could make limited solo cuts if the forecast shows a near-term deficit in the current budget year, which ends in June. The state is out of budget reserves and its cash flow account is so strained finance officials already set up a $600 million credit line, just in case. Pawlenty's authority to cut spending is limited after Minnesota's top court invalidated his more sweeping use of the power called unallotment earlier this year. Lawmakers return to the Capitol in a month, and the budget has to be balanced by June 30. Options for cutting dwindle as money is spent.

Q: A new governor and Legislature take office in 2011. How will that affect the way the deficit is handled?

A: Minnesota doesn't have a governor-elect yet, with Democrat Mark Dayton leading Republican Tom Emmer as the votes are recounted statewide. New GOP majorities taking over both legislative chambers oppose tax increases. That could mean a battle royale if Dayton wins after promising to raise high-end income taxes. If the anti-tax Emmer comes out on top, Republicans will have a clear path to deep spending cuts.

Q: Does the deficit have to be fixed?

A: Yes. The Minnesota Constitution requires balanced books at the end of each budget cycle.

Q: Will state leaders have any new information before they finish the budget?

A: Yes. The next forecast will come out by early March, about two months after the 2011 Legislature convenes. But Thursday's report will serve as the basis for the governor's budget proposal, which lawmakers usually take as the starting point for their budget. A new governor would have to produce a budget plan by mid-February. If Pawlenty stays in office past the end of his current term pending a court case over the governor's election, his plan would be due in late January.

Q: Will Minnesota have to borrow to pay its bills?

A: State officials have prepared to do so if necessary. Thursday's forecast should give a better idea of whether the state will resort to short-term borrowing for the first time in 26 years. The daily balance in the general treasury had been projected to hit a low point by the middle of this month.